Cotton's next leap into trade arena?

The next leap, however, may take place in the trade arena, not in the field.

Michel Paggi, director of the center for agricultural business at California State University at Fresno, says trade issues will supplant production as the U.S. cotton industry looks for consistent markets.

“Cotton is becoming an export industry,” Paggi said during a recent presentation to the Plains Cotton Growers, Inc., annual meeting in Lubbock. “If the industry is to maintain its current base we must compete in the global market to a degree we’ve never done before,” Paggi said.

“And we have to sell our product as the best in the world. Achieving that goal will require efforts from all phases of the cotton industry, production, handling, ginning, etc. Providing the best product will challenge the entire cotton industry infrastructure.”

Paggi said a number of issues challenge U.S. cotton in international markets. Concerns include trends in the domestic market, Brazil’s complaint regarding U.S. cotton trade policies, China’s penchant for subverting treaty agreements, and an agreement on textiles and clothing.

He said domestic consumption has been compromised by loss of textile mills over the past 10 years. A shrinking market at home means the industry must look to the export market to move more and more cotton.

Exports likely will be the dominant factor in cotton sales in the future, he said.

Paggi said a complaint by Brazil alleges the U.S. farm program gives U.S. cotton an unfair advantage in international markets. “We expect Brazil to make a formal complaint in the World Trade Organization,” he said.

That complaint will be “a challenge to the entire U.S. farm legislation. They claim that what we do has negative impacts on Brazil agriculture, primarily because U.S. farm policy displaces Brazilian exports.”

Paggi says Brazil is “using everything it can to attack the U.S. farm bill.” The complaint also alleges that U.S. farm policy undercuts prices and increases market share at the expense of Brazil and other producers.”

Paggi says Brazil may have a point but a blunt one at best. “Have we influenced Brazil’s export market with our farm policy? Maybe, but it’s hard to prove one country’s policies can result in detriment of export potential to another. And any effect we might have had would be insignificant compared to other market forces, such as Brazil’s domestic consumption.”

He said the claim that U.S. policy caused a cotton price decline is “hard to justify. Price fluctuations result from a number of factors and the effect of any U.S. program would be small in relation to other issues. We see a lot going on that affects cotton markets.”

He said showing a correlation between one event and another does not prove cause.

Paggi said it’s not a foregone conclusion that Brazil will prevail in its WTO challenge.

The United States, on the other hand, has problems with China’s reluctance to live up to WTO agreements.

“In 2001 China agreed to open their markets. They agreed to take 3.75 million bales of cotton in 2002 and 4.1 million by 2004. One third of that was destined for state trade organizations. The remaining two-thirds was to go to private sector mills.”

Problems arose early on. “China began buying late and allocations were not done as the agreement stipulated. Administrative procedures and limits on imports impeded orderly trade.

“It’s a complex issue,” Paggi said. But it’s worth the effort necessary to solve the problems. “China offers potential as a large net importer; it an be a tremendous market, but it also can be a competitor.

He said China produces 20 million bales per year. “Mill use is increasing and mills will benefit from imports. With a world supply at 30 million bales, we have a large stake in what happens in China. We would like to see their trade balance in the negative range.”

Paggi said the tariff rate quota agreement (TRQ) with China also is a concern. China has allotted only 6 percent of its imports to the private sector. But 61 percent has been set aside for re-exportation. Cotton comes into China where they process it and export it. That has a negative effect on U.S. mill use.”

Paggi said China has set up an “elaborate, complex scheme to administer the agreement. It’s difficult for the Chinese to set up a streamlined economy.”

Resolution of problems with China “are not simple,” Paggi said. “A trade mission had been set to travel to China in late April, but health worries likely delayed the trip.”

Paggi said the Agreement on Textiles and Clothing, also concerns industry observers. The Uruguay Round of trade talks was supposed to reduce tariffs and eliminate them over a 10-year period. All quotas and tariffs are supposed to be gone by 2005.

“More than 700 quota items still exist,” Paggi said, “and by 2005, it’s got to be at zero. Consequently, I think we will see a surge of imports prior to 2005. I expect an increase in competition in textile markets.”

He said the United States has been the only country making an effort to lift tariffs. “Ours is at 9 percent and other countries remain in excess of 40 percent.”

He also expressed concern about U.S. trade representatives offering liberalized trade at the expense of domestic industries

“The cotton industry faces a lot of problems in the 21st Century but it also faces a lot of opportunities,’ Paggi said. “We have a significantly more difficult row to hoe going into the 21st Century than the cotton industry did at the beginning of the 20th Century.